United States: Withdrawal From Iran Deal Leaves Short Time Frame For U.S. Businesses To Comply With Sanctions

President Donald Trump announced his decision on May 8, 2018, to cease participation in the Joint Comprehensive Plan of Action (JCPOA) relating to Iran. His National Security Presidential Memorandum (NSPM) of same date orders all cognizant U.S. government agencies to take steps to "snap back" to the primary sanctions and regulations in place prior to the effective date of the JCPOA. These actions will also effect certain changes to the primary sanctions regime, in addition to the actions that will impact the secondary/nuclear related activities that were covered by the JCPOA.

The NSPM directs the secretary of the Treasury Department to immediately prepare for the reimposition of all U.S. sanctions lifted or waived in connection with the JCPOA—to be accomplished as "expeditiously" as possible and in no case later than 180 days from the date of the NSPM.

The Treasury secretary's steps will include two wind-down periods. Certain wind-down activities must be accomplished within a 90-day period from May 8; others must be accomplished within a 180-day wind-down period. Certain waivers that had been granted by the secretary of the Treasury will be kept in place during the applicable wind-down period.

Sanctions to be imposed after the 90-day wind-down period (August 6, 2018) include:

  • Sanctions on the purchase or acquiring of U.S. dollar banknotes by the government of Iran;
  • Sanctions on petroleum-related transactions with, among others, the National Iranian Oil Company, Naftiran Intertrade Company and National Iranian Tanker Company, including the purchase of petroleum, petroleum products or petrochemical products from Iran;
  • Sanctions on transactions by foreign financial institutions with the Central Bank of Iran and designated Iranian financial institutions pursuant to certain provisions of the National Defense Authorization Act for Fiscal Year 2012;
  • Sanctions on the provision of specialized financial messaging services to the Central Bank of Iran and Iranian financial institutions described in Section 104(c)(E)(ii) of the Comprehensive Iran Sanctions and Divestment Act of 2010; and
  • Sanctions on the provision of underwriting services, insurance or reinsurance, and sanctions on Iran's energy sector.

Following the 90-day wind-down period, the U.S. government will revoke the following JCPOA related authorizations under the U.S. primary sanctions:

  • The importation into the United States of Iranian-origin carpets and foodstuffs and certain financial transactions pursuant to General License under the Iranian Transactions and Sanctions Regulations (31 CFR part 560 (ITSR));
  • Activities undertaken pursuant to specific licenses issued in connection with the Statement of Licensing Policy if such activities are related to the export or re-export to Iran of commercial passenger aircraft and related parts and services; and
  • Activities undertaken pursuant to General License I, relating to contingent contracts for activities eligible for authorization under the JCPOA Statement of Licensing Policy.

As noted above, the 180-day wind down ends on November 4, 2018. At that time the United States will reimpose the following sanctions on associated services:

  • Sanctions on Iran's port operators and shipbuilding sectors, which includes the Islamic Republic of Iran Shipping Lines, South Shipping Line Iran or their affiliates;
  • Sanctions on petroleum-related transactions with, among others, the National Iranian Oil Company, Naftiran Intertrade Company and National Iranian Tanker Company. This also includes the purchase of petroleum, petroleum products or petrochemical products from Iran;
  • Sanctions on transactions by foreign financial institutions with the Central Bank of Iran and designated Iranian financial institutions under Section 1245 of the National Defense Authorization Act for Fiscal Year 2012;
  • Sanctions on the provision of specialized financial messaging services to the Central Bank of Iran and Iranian financial institutions described in specific provisions of the Comprehensive Iran Sanctions and Divestment Act of 2010;
  • Sanctions on the provision of underwriting services, insurance or reinsurance; and
  • Sanctions on Iran's energy sector.

For sanctions covered by the 180-day wind-down period, U.S. owned or controlled foreign entities have 180 days (until November 4, 2018) to wind down certain activities with the government of Iran or persons under the jurisdiction of the government of Iran that were authorized pursuant to General License H.

The NSPM also means that, no later than November 5, 2018, the United States will reimpose, as appropriate, the sanctions that applied to persons removed from the List of Specially Designated Nationals and Blocked Persons and/or other lists maintained by the U.S. government on January 16, 2016.

The U.S. Office of Foreign Assets Control (OFAC) recommends that those activities undertaken pursuant to the sanctions relief covered by the JCPOA should take steps to wind-down those activities by November 4, 2018, so as to avoid exposure to sanctions or an enforcement action pursuant to U.S. law. This time frame is obviously a very tight period to undo commercial activities.

Because the United States intends to reimpose certain provisions of Executive Orders 13574, 13590, 13622, 13628 and 13645, persons that are engaging in activity undertaken consistent with the JCPOA should take steps necessary to wind-down those activities to avoid exposure to sanctions or an OFAC enforcement action after August 6, 2018, or November 4, 2018, depending upon the activity.

In recognition of the problems relating to the wind-down deadlines, OFAC states that if a non-U.S., non-Iranian person is owed payment for goods or services "fully provided or delivered to an Iranian counterparty prior to August 6, 2018, or November 4, 2018, as applicable, pursuant to a written contract or written agreement entered prior to May 8, 2018, and such activities were consistent with U.S. sanctions in effect at the time of delivery or provision, the U.S. government would allow the non-U.S., non-Iranian person to receive payment for those goods or services according to the terms of the written contract or written agreement." This policy will also apply to the repayment for loans or credits extended to an Iranian counterparty prior to the end of the 90-day or 180-day wind-down period.

Additionally, OFAC will take steps to allow U.S. persons and U.S.-owned or controlled foreign entities until August 6, 2018, or November 4, 2018, as applicable, to wind down operations in or business involving Iran, and to receive payments according to the terms of the written contract or written agreement entered into prior to May 8, 2018, for goods or services fully provided or delivered pursuant to OFAC authorization.

OFAC, pursuant to Federal Register Notice, intends to replace General License H, General License I and general licenses set forth at 31 CFR Sections 560.534 and 560.535 (relating to trade in Iranian-origin carpets and foodstuffs) "with more narrowly scoped authorizations." OFAC also intends to allow U.S. persons and, as appropriate, U.S.-owned or -controlled foreign entities to engage in all transactions ordinarily incident and necessary to wind down activities that were previously authorized pursuant General License H, General License I or the general licenses set forth above and to receive payments as noted above.

No additional deliveries of goods or services or extension of additional loans or credits to an Iranian counterparty are permitted after August 6, 2018, or November 4, 2018, as applicable.

It is OFAC's understanding that at the end of the wind-down periods, the State Department does not intend "to issue further broad waivers of relevant statutory authorities, and OFAC plans to revoke the general and specific licenses issued in connection with the sanctions relief provided under the JCPOA that remain in effect as of that time."

It is recommended that persons impacted by the May 8 NSPM and the actions of OFAC and/or any other U.S. governmental agency relating to the May 8 action consult with representatives of the cognizant agency as well as their legal advisors to discuss specific concerns. It is also recommended that persons visit the websites of those agencies involved in implementing the May 8 action of the president for guidance.

In this respect, OFAC issued a FAQ document regarding the reimposition of sanctions pursuant to the May 8 NSPM.

For More Information

If you would like further information about this Alert, please contact Brian S. Goldstein, any  member of the International Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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